Tata Technologies files with SEBI for IPO

Tata Technologies, the engineering and automotive and aerospace design arm of Tata Motors, is trying at valuation discovery. It has just filed the draft red herring prospectus (DRHP) with SEBI to raise funds via an initial public offering (IPO). The overall IPO of Tata Technologies will comprise of a pure offer for sale for 95.71 million shares (9.57 crore shares) by the existing promoters and shareholders of Tata Technologies. The issue being an offer for sale (OFS), there will be no fresh funds coming into the company. Also, since it is just a transfer of stake from one stakeholder to another, there will be no dilution of equity or dilution of EPS in the process. The OFS will enable the company to list and eventually get a market driven valuation that can enable the use of stock as currency.

Out of the total offer for sale of 95.71 million shares by existing promoters and shareholders. The OFS consists of up to 81.13 million shares by Tata Motors, which is the predominant shareholder of Tata Technologies. IN addition, approximately up to 9.72 million shares will be sold by Alpha TC Holdings Pte Ltd while up to 4.86 million shares will be sold by the Tata Capital Growth Fund I. In terms of holding pattern, Tata Motors holds 74.69% of Tata Technologies, Alpha TC Holdings holds 7.26% of the company while Tata Capital Growth Fund I holds 3.63% stake in Tata Technologies. The issue will be lead managed by JM Financial, Bank of America (BOFA) Securities and Citigroup Global Markets acting as the book running lead managers (BRLMs) to the issue.

In terms of business focus, Tata Technologies specializes in product engineering and digital services. In terms of industry franchise, the company caters to industries like automotive, industrial heavy machinery, and aerospace. With an established pedigree and working experience of more than 33 years, Tata Technologies has put in considerable man years of experience into the particular business. In terms of specific offerings, Tata Technologies offers engineering, research and development, digital enterprise solutions, education programs, value-added reselling, and IT product lifecycle management.

Interestingly, this will be the first Tata group IPO in 19 years; the last one being the TCS IPO in the year 2004. Since the IPO, TCS has been a multi-bagger many times over, so the markets would be keenly awaiting the issue. While Tata Technologies started out as a captive supplier to group companies, today its franchise goes much beyond that. For instance, Tata Technologies has increased the share of business generated outside the captive segment to 64% as of FY22. It was just 46% in the year FY20. The company enjoys net margins of nearly 9% currently on an annualized basis.